View Full Version : The idea of a tax on oil profits is moronic

Mota Boy
04-29-2006, 02:34 AM
I was watching The Daily Show a while back (actually, when I was supposed to be cramming for my history exam), when I caught John Stewart making a complete fucking fool of himself. Worst of all, the Daily Show audience enthusiastically applauded his every misstep.

Essentially, Stewart (who to his credit, had an emergency replacement guest in the Wall Street Jounal's OK-ish-but-with-horrible-teeth correspondant instead of, as Tivo predicted, the excellent Thomas Friedman) kept trying to get the oil/economy expert to admit that it was outrageous how oil companies were making so much money off of high oil prices. At one point he said something like "Well yes, I know that the prices are high and so they have to sell them at that price, but doesn't it seem like they're taking too much advantage of the situation? Aren't they screwing us over? Shouldn't they take at least a bit of a cut and pass the savings onto us?"

Holy shit, is there anyone out there that does not see the collosal ignorance involved in that statement?

Just in case, lemme explain as I wanted to do to Stewart: oil companies sell a commodity they pull out of the ground. As it is a commodity, they have to sell it at the price dictated by the market, over which they have little control (much like the stock market). Oil companies are not the middle man. They don't get the oil at a high price and then have to turn it over to the consumer. They dig it out of the ground and sell it at whatever price the market dictates. They're essentially famers relying on wheat prices. When oil was at ten dollars a barrel, they lost enormous sums of money. Now that oil is at seventy dollars a barrel, they not only make money, but make it economically feasibly to explore oil in areas that were previously economically inefficient to mine. A tax on their profits would cut back on exploration and innovation and, in the future, only serve to raise oil prices.

Basically, oil companies have already purchased stock in oil. They have to sell it at the price the stock market dictates. Let's say they bought it at twenty. If the market's at twenty-two, they make a two dollar profit. It's a profit, but it's not great. If the market goes to thirty, they make a ten dollar profit. Again, good, but not outrageous. Now that it's at seventy-five, however, they're making a fifty-five dollar profit, and people are saying "Wait, why are YOU making so much money?". They don't really have a choice. And they're using their money to find more oil to sell it to you. Pointing out their large profits as an example of industry greed is just taking advantage of public ignorance. I fucking hate it, you stupid fucks. That policitians (sadly, largely Democrats) are proposing a "windfall tax" to punish oil companies for making large amounts of money is just pandering to public ignorance at the cost of an efficient economy. Makes me sick.


04-29-2006, 08:07 AM
Wow, I never thought of it that way. Up until now, I thought that, simply, oil companies were price gouging and taking advantage. Thanks for making me a bit less ignorant.

04-29-2006, 09:26 AM
I think I have a question on your point.

I trust you're familiar with the invisible hand concept - now, if companies can afford to sell for less, why would they be selling at more than the required price to, say, both make a profit and be able to expand at a healthy rate? Ideally, wouldn't they be forced at a price that would allow this to happen, and no more? And I can't see the 20$ extraction price versus the 55$ profit fitting into that market of necessity.

What would be the reason for such a great discrepancy, exactly? It can't all go to finding new oil for the market of such a commodity.

04-29-2006, 09:30 AM
OPEC is one of the reasons for the rising prices.

As well the Oil companies are not completely innocent.

Mota Boy
04-29-2006, 02:15 PM
Sarah - You know me well enough to know that I don't allow personal biases to color my opinion. I've always been a proponent of the free market system (with a powerful government body charged with guarding it from monopoly/oligopoly) and had a strong antipathy towards ignorace.

The main reason that gas prices just shot up by about twenty cents or so is due to a recently-enacted law that forced gas to be mixed with a certain percentage of ethanol, a substance that can't be easily stored or transported, creating shortages in some areas. Also, many gas stations, especially in the Northeast, haven't yet set up the proper infrastructure to handle it. In a few months, however, the cost of the ethanol-additive will likely decline as the country develops the proper infrastructure to deal with it and ethanol refineries gear up production.

I trust you're familiar with the invisible hand concept - now, if companies can afford to sell for less, why would they be selling at more than the required price to, say, both make a profit and be able to expand at a healthy rate? Ideally, wouldn't they be forced at a price that would allow this to happen, and no more?
Companies can certainly afford to sell for less, but they don't have the ability. The price of their product is dictated by the market. Again, if you own a piece of stock trading at $75, you can't decide that you want to sell it for $70, you have to sell it for 75. The market, not the individual, dictates the price. Many consumer industries sell a patented product whose price they can choose based upon its cost to manufacture and estimated demand. Oil companies all sell a similar product, so the price is determined by the aggregate global supply and demand. Right now, it's increasingly expensive to find supply - you have to sink billions of dollars into each new well you drill. Even ExxonMobil, the largest company in the world right now, often partner's up with other other companies when drilling wells in order to defray costs. Simultaneously, India, China and various other third-world countries are rapidly modernizing, increasing global demand. Prices are being effected at a global level by forces that are beyond anyone's control and are only going to grow stronger in the coming years.

Sin Studly
04-29-2006, 03:02 PM
I thought Mota was a nigger, not a raghead?

Mota Boy
04-29-2006, 03:16 PM
Mota, how is it that gas costs more for other countries than it does for us? Also, are you saying that OPEC doesn't engage in price fixing?
A variety of reasons. For one, the US still produces some of its own oil, and domestic production helps keep the price down (otherwise we're shipping oil into the country in tankers, which is fairly expensive). In addition to having to import most of their oil, many European countries also have very high taxes on the product (along with high taxes on everything).

And of course OPEC engages in price fixing, but they aren't the culprit this time. There are several long-term factors coming into play here, along with many short-term ones, mainly that Iraq, the country with the world's second-largest oil reserves, has stopped being a significant contributor to the global market, and Iran ain't looking too good either. We're talking about aggregate supply and demand for a global resource, filtered through specific production issues shaped by domestic politics. There are several factors at play here, and no easy villian. The fact is, OPEC's policies towards setting oil prices have not changed significantly lately.

04-29-2006, 04:13 PM
This is largely coming from assumption. but I'm looking forward to the day when oil runs dry. All this controversy is as annoying as apple-users.

Also many European nations have their own oil. Denmark does for example, as does Norway. Yet we have the highest prices, because we have a huge sales-tax and then taxes added upon oil. It may also have something to do with Kyoto, I don't know because I don't consume much gas.

Mota Boy
04-29-2006, 10:34 PM
But anyway, because of the specific nature of oil I'm not against against a "windfall tax" on oil. It's not a standard commodity, it's a natural limited resource thus idealistically belongs to each of us (or none of us), an irrelvant argument for liberals obviously (knowing their "love" for democracy). Furthermore due to it's inelasticity on both the demand and supply side it will create excess profits. Thus leads to lower investments in other sectors of the economy and there will be less money 'available' to look for alternative resources/energy...
Eh? The only people investing capital into finding are oil companies. It's not like with oil prices so high, a start-up oil company gets together to raise venture capital, spend hundreds of thousands of dollars a day to rent an offshore platform and then sink tens, or even hundreds of millions of dollars into drilling a well. These are investments that need large amounts of capital in the first place - investments that oil companies possess. Their money allows them to spend more on developing previously-unreachable fields, thus allowing the price of oil to slide up slowly, instead of leaping ahead because of artificial constraints on the industry.

Meanwhile, as the price of oil slowly climbs, all that investment in the energy sector is pouring into sources of alternate energy. It's reaching the point where they might become economically feasible. Forcing the price of oil upwards before these new technologies is ready is really not the best way to go about it.

Personally I'm usually opposed to any homogeneous product with an inelastic demand side being supplied through the private market.
Yes, because public monopolies have been repeatedly proven throughout history to be the most efficient way to provide goods and services.

But the real important question: "Thomas Friedman" and "excellent" in the same sentence? holy shit
I'm sorry, do you have a better adjective for one of the most respected authors on the subject of globalism?

05-02-2006, 12:28 AM
I quite enjoy this post, “the flipside of the typical view of the oil companies.” I do not claim to be particularly knowledgeable on the inner workings of the oil business nor economics in general, but I do have a few comments/questions.

I think having ties to any aspect of life, be it the oil industry, or anything else, pretty much automatically leads to developing a certain sympathy towards it simply due to being more informed on that side of the issue. There’s a flipside to most political issues and I always have trouble choosing a “side.” I always feel compelled to play devil’s advocate because I find it hard to allow one side be the end all and be all to any situation... Or maybe I’m just a fence sitter.

True, it may not be by “choice” that the oil companies are making a profit. And spinning it to make it sound really good that they are investing more money in finding oil may be skewing things a little. They are still making a profit off of it, money that could be going elsewhere in theory. But in terms of the economic benefits, I would tend to agree that it’s a bad idea to tax. Definitely. My question here is to what other types of companies would this same theory extend? Is this special to oil companies or do you not agree on taxing most companies?

The point about the ethanol is interesting. I was aware that cleaner burning gas has become quite the issue, I just wasn’t sure to what extent legislation had been imposed. One would think that if such a huge portion of the cost came from the necessity of incorporating ethanol that this would be more publicized? Or have I just not heard about it? I would imagine that the public would eat that up since it’s to protect the environment. What? The government is actually doing something super expensive to benefit the environment? Somehow I’m skeptical as to how much of the cost comes from that, although I would be actually pretty happy if it did.

My final question lies in the price gauging thing. Clearly it is not just the market that makes it so that the price of gas goes up 10 – 15 cents per litre every weekend and even more every holiday weekend. Or even fluctuates over the course of a day. Who’s at fault here? Should the public be outraged? Why is nothing being done about this?

Not Ozymandias
05-02-2006, 01:16 AM
Too many words, not enough avatars.

05-02-2006, 07:28 AM
Sound arguments Mota, except for that no other single ressource traded on the market has the people sought after in such large quantities. Oil is the bread of the 21st century in that there restupon the survival of society as we know it--in particulary in the United States and Canada to a lesser extent. European countries, in contrast, are much more dense and transportation--of both people and goods--isn't nearly relevant as it is in suburbunised America. But our huge and spaced out countries were built on the concept that energy will be forever availible at cheap prices. Were we stupid? Yes, but it doesn't take from the fact that the steady climb on oil threathnes to colapse this social model, and with it drag us into inflation that bare for consequance an unprecedent number of bancruptcies, personal and commercial, housing crisis, a heavy burden for the automotive industry, the loss of overseas markets etc and everything that follows in the domino effect.
We can take the hit, sure; I personally think most economists have grown lazy and complacent and call every single change "unstabilising" as if a weaker economy is synonymous with disaster. It annoys me how the economic index is apperantly the scale to measure one's level of living. The materialist fat fucks in this country ought to remember that our countries have lived through worse times. But I disgress.
There are a number of measures that could be taken to combat rising oil prices. Most are drastic, however. Windfall tax seems like the less damaging of the bunch. I don't know the details thereof nor the speculations of the consequances, but if government regulation can stabilise prices at the expense of oil companies, i'm all in favour. I suport the free market theory, but above all I believe that government's allegiance is with the electorate and not with economic models that may or may not be any longer relevant today.

05-02-2006, 07:34 AM
Mota, how is it that gas costs more for other countries than it does for us? Also, are you saying that OPEC doesn't engage in price fixing?

I'll also say that a number of countries have their oil prices fixed at around 20 cents a litter, namely Saudis, Russia, Venezuela, Iran etc... They are, however, net exporters with government playing a big role in regulating the home market. And with all due respect to accuracy, their purchasing power per capita is significantly lower.

05-04-2006, 12:24 PM
when the oil runs dry were screwed-we rely on oil + coal for just about everything